In the World Economic Forum’s latest competitiveness report, Greece is the lowest ranked European country, barring Serbia and Bosnia and Herzegovina. Indeed, it is the lowest ranked country in the developed world. The country has one of the very worst macroeconomic environments in the world, has the worst public institutions in the developed world, and there only 16 out of 142 countries with a less efficient labor market.

A 2008 study on competitiveness by Michael Porter for the Harvard Business School (its focus was on Saudi Arabia, but the cross-country data is very useful, hat tip to the LOL Greece blog) shows just how far out of whack the Greek economy was in 2007.

Mr. Porter charted GDP per capita on a purchasing power basis against business competitiveness. Greece, he found, was a considerable outlier, its GDP per capita was more than 50% above where it ought to have been judging by its ranking for business competitiveness.

Since then, Greece’s GDP per capita has fallen, but so too has its competitiveness ranking. Assuming that structural changes will make it more competitive in future, including ridding itself of anti-business laws, reducing the role in the economy of its bloated bureaucracy — all of which will be hard, but easier than improving infrastructure and human capital which can take decades — its competitive ranking should improve, say to the level of Spain or the Czech Republic or Estonia, all of which cluster at around the same level, somewhere around the third quartile for European countries.

Should this happen Greece would still need to see a fall of around 20% in its GDP per capita to reach trend. Which means substantially more suffering for the Greek population — erosions of living standards are never fun.

For too long, Greeks were made to believe they were richer than they were. The process of returning their apparent wealth to levels that can be justified by the economy’s productivity is a slow one, especially since the normal route to quick adjustment, through a currency devaluation, is closed to Greece.

Will the Greeks be able to manage before they finally decide that the euro experiment isn’t worth the pain? Unlikely, because the adjustment won’t need just a few changes in laws and wage cuts, but a more profound change in the country’s political culture. These changes take years, and it’s unlikely Greek politicians have the time they need.

Goldman Sachs were involved in causing this crisis, indeed they deliberately instigated it in collusion with the Greek political elite.
Papademos worked for GOLDMAN SACHS! How can you have a man who CAUSED THE MESS in charge of fixing the mess .Insanity.

And, oh, the ECB head is also a GOLDMAN SACHS man. And what about Italy, another GOLDMAN SACHS man! Hmm, there's a pattern here...